Engineer Contractor newbie Question

[Alex007]

Hello all,

I have just completed an internship with a local company which involved performing FEA/CFD analyses and other work for them. At the end of my internship my supervisor expressed that he is very impressed with my work etc etc, and that he would definitely want me to come back and do more work for them in the future (in the next coming months), but as a contractor (so he could pay me more for my work).

How do I go about doing this? Would I need to register a company? How much should I charge? What is commonly done: charge per hour, per job?

Here is a little about myself:

Got my final degree two years ago in Mechanical Eng.

Have some prior industry experience, and fair amount of academic research experience

Currently teach engineering at a local university

Your suggestions are highly appreciated. Thank you in advance

 

[blybrook PE]

Depends on the state for the paperwork involved, but a few states that I've dealt with don't require an individual to have a separate business license, some do.  You will need to check with your state business licensing board to determine what's required, if anything.

In Alaska, you typically don't need to have a business license to do contract work with an employer, unless said employer requires it.  Then you have to make sure that you've got yourself covered for the state, borough and city licenses (depending on where you live in AK).  Essentially, as a contractor, you sign a contract with the employer stating that you will be paid a specific rate (hourly, monthly, etc...) for your services or a flat fee for the specific job.  Here's the kicker, as a contractor, you are wholly responsible for the taxes, insurance and other benefit payments that are required to be paid to the Feds or state.  Therefore, in the long run it is typically cheaper for the employer to have you as a contractor than as a regular employee.

I know a few guys doing contract work who used to work for the company that they now contract with.  When they were regular employees, they were making between 35-45 an hour.  As contractors, they're being paid between 70-90 an hour; but don't get ANY of the company benefits and are personally responsible for paying the applicable federal & state taxes.  When the math is said and done with, they're actually making approximately the same wage (+\- 10\hr), don't have any benefits and have extra tax headaches to deal with at the end of the year. 

If it is very short term, then it might be beneficial to do the contract work but be sure you work with a financial adviser to sort out the taxes and benefits crap that you'll need to have covered.  

 

[Alex007]

Thanks blybrookPE for sharing these points. I was completely unaware of the possible taxes and legal problems. Now, as I understand, it is up to me how much and in what way (hourly, monthly, etc) I should charge. Do you have any advice regarding this? Also, is it recommended to register a company or is it a better idea for me to be hired as an individual? Thanks!

 

[bwin12]

What happens with the work you "provide"? Are you consulting? Designing? To me, that plays a big role in what you can negotiate.  

 

[Alex007]

What happens with the work you "provide"? Are you consulting? Designing? To me, that plays a big role in what you can negotiate.  

I would be designing and validating products based on my simulation work (FEA,CFD,modal an., etc).

 

[blybrook PE]

In regards to your question for setting your rate, only you can really determine what is best for you.  Be sure to have some wiggle room for negotiations with the employer.  One rule of thumb that I've seen for folks with 10+ years of experience is between 2/3 to 3/4 of the billing rate for a similarly employed individual at the same company.  This will vary based on the field you are working and the employment opportunities in your area. 

An example for one individual I know quite well who had over 5 years at a company before being laid off.  Their billing rate was $125/hr prior to the layoff, when things picked back up slightly and offered a contractor job their being paid for $80 or 85/hr and still being billed out at $125/hr.  The discrepancy of the rates is for the internal overhead and accounting that the company has to undergo while fulfilling the contract.  The actual rate will vary by your employment climate, the employer and your experience.

If I don't have to deal with the legal BS  of getting a business license and keeping all that extra paperwork straight, then I wouldn't.  Again, you will need to contact your state board of business licensing to determine what actions you need to take.  No one here can direct you how to proceed on this.

Good luck.

 

[bwin12]

I agree with above, especially the 2/3 to 3/4 part. You can just go as a part time as needed employee, but make sure you get a little higher hourly rate than normal assuming you wont get any benefits from the company.

Also, make sure you take into account computer and software expenses. If you are using/buying your own your hourly rate needs to cover that (or some other lump sum system for reimbursement).